According to Clause 31, Article 4 of the Law on Enterprises 2020, Enterprise reorganization is defined as the division, separation, consolidation, merger or conversion of business type. It can be understood that these are methods to change the scale of the company (through division, separation, consolidation, merger of businesses) or change the type of company (through converting the type of business). So how are these methods defined? What are their legal consequences?

CSPL: Articles 198, 199, 200, 201, 202, 203, 204, 205 Law on Enterprises 2020

1. Dividing a company

– Applicable objects: Limited liability companies, Joint stock companies.

– Limited liability companies, joint stock companies can divide the assets, rights and obligations, members, shareholders of the existing company (hereinafter referred to as the divided company) to establish two or more new companies.

– Legal consequences: The divided company ceases to exist after the new companies are granted Business Registration Certificates. The new companies must be jointly responsible for the obligations, unpaid debts, labor contracts and other property obligations of the divided company or agree with creditors, customers and employees for one of those companies to perform this obligation. New companies naturally inherit all legal rights, obligations and interests divided according to the resolution and decision to divide the company.

2. Splitting a company

– Applicable subjects: Limited liability companies, Joint stock companies.

– Limited liability companies, joint stock companies can be split by transferring a part of the assets, rights, obligations, members, shareholders of the existing company (hereinafter referred to as the split company) to establish one or several new limited liability companies, joint stock companies (hereinafter referred to as the split company) is the separated company) without terminating the existence of the separated company.

– Legal consequences: After business registration, the separated company and the separated company must be jointly responsible for the obligations, unpaid debts, labor contracts and other property obligations of the separated company, unless the separated company, the separated company, creditors, customers and employees of the separated company have otherwise agreed. The separated companies naturally inherit all legal rights, obligations and interests divided according to the resolution and decision to separate the company.

3. Company consolidation

– Applicable objects: Limited liability companies, joint stock companies, partnerships.

– Two or more companies (hereinafter referred to as consolidated companies) can merge into a new company (hereinafter referred to as consolidated companies), and at the same time terminate the existence of the merged companies.

– Consequences Legal: After the merged company registers its business, the merged company ceases to exist; The consolidated company enjoys legal rights and interests, and is responsible for obligations, unpaid debts, labor contracts and other property obligations of the merged companies. The consolidated company naturally inherits all legal rights, obligations and interests of the merged companies according to the company consolidation contract.

4. Company merger

– Applicable subjects: Limited liability companies, joint stock companies, partnerships.

– One or several companies (hereinafter referred to as the merged company) can merge into another company (hereinafter referred to as the merging company) by transferring all assets, rights, obligations and legal interests to the merging company, and at the same time terminating terminate the existence of the merged company.

– Legal consequences: After the merging company registers its business, the merged company ceases to exist; The merged company enjoys the legal rights and benefits and is responsible for the obligations, unpaid debts, labor contracts and other property obligations of the merged company. The merging companies naturally inherit all legal rights, obligations, and interests of the merged companies under the merger contract.

5. Converting business type

5.1. Convert a limited liability company into a joint stock company

– A limited liability company can be converted into a joint stock company by the following method:

• Converting into a joint stock company without mobilizing additional organizations or individuals to contribute capital, without selling capital contributions to other organizations or individuals;
• Converting into a joint stock company by mobilizing additional organizations and individuals capital contribution;
• Converting into a joint stock company by selling all or part of the capital contribution to one or several other organizations or individuals;
• Combining the above method and other methods.

5.2. Converting a joint stock company into a single-member limited liability company

A joint stock company can convert into a single-member limited liability company by the following method:

• A shareholder receives the transfer of all the corresponding shares of all remaining shareholders;
• An organization or individual that is not a shareholder receives the transfer of all the shares of all remaining shareholders; all shareholders of the company;
• The company only has 01 shareholder remaining.

5.3. Converting a joint stock company into a limited liability company with two or more members

A joint stock company can convert into a limited liability company with two or more members by the following method:

• Converting into a limited liability company with two or more members without mobilizing additional shares or transferring shares to organizations or individuals other;
• Convert into a limited liability company with two or more members and mobilize additional organizations and individuals to contribute capital;
• Convert into a limited liability company with two or more members and transfer all or part of the shares to other organizations and individuals to contribute capital;
• The company only has 02 remaining shares east;
• Combining the above method and other methods

5.4. Converting a private enterprise into a limited liability company, joint stock company, partnership company

Private enterprises can convert into limited liability companies, joint stock companies or partnerships according to the decision of the private enterprise owner if they fully meet the following conditions:

• The converted enterprise must meet all the conditions prescribed in Clause 1, Article 27 of the Law Business 2020;
• The owner of a private enterprise commits in writing to be personally responsible with all of his or her assets for all unpaid debts and commits to pay the debt in full when due;
• The owner of a private enterprise has a written agreement with the parties to the unliquidated contract that the converted company accepts and continues to perform the contracts that;
• The owner of a private enterprise commits in writing or has a written agreement with other capital contributing members on the reception and use of existing employees of the private enterprise.